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A Way To Sell Goods With Network Externalities

  • Tatsuhiro SHICHIJO
  • Yuji NAKAYAMA
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    There are a lot of goods which have network externalities. While the number of players who have such a good is small, they may not get enough utility from the goods. That is, players have an incentive to delay their decision, when they purchase the goods with network externalities. Delay causes negative effects on players' utility, so equilibrium with delay is inefficient. We propose a way to settle this problem using a kind of call option. If we use the way and some conditions are satisfied, all players purchase the good and the delay decreases in equilibrium

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    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 711.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:feam04:711
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    1. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Rauch, James E, 1993. "Does History Matter Only When It Matters Little? The Case of City-Industry Location," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 843-67, August.
    5. Amil Dasgupta, 2000. "Social Learning with Payoff Complementarities," Econometric Society World Congress 2000 Contributed Papers 0322, Econometric Society.
    6. Gale, D., 1992. "Dynamic Coordiantion Games," Papers 13, Boston University - Department of Economics.
    7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
    8. Toshihiro Matsumura & Masako Ueda, 1996. "Endogenous timing in the switching of technology with Marshallian externalities," Journal of Economics, Springer, vol. 63(1), pages 41-56, February.
    9. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
    10. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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